How Bucky Trumps Marx

Hello Prof. Richard Epstein,

My thanks once again for your response:

"As to Buckminster, that is a point that was made by Marx in the 1844 essays on alienation of man from the means of production. I have to say that there are some people for whom it is true, but for most the question is really one of the division of labor. I don't like to menace others by working with my hands. And others like to run busineses, and still others to do other things. Let the division of labor sort us out and the level of frustration will fall under control."
RAE

And, thanks for the reference to your Cato piece (and nice picture!). I found most promising your comment that,

"...efforts to stop political action won’t do much good unless and until the rules of the game are so altered such that politicians have little to sell or little to threaten."

This is precisely the critical reason why we need income guarantees, which have the effect of changing the rules of the game to liberate the population from the control of the those who control capital, thereby returning politicians to the genuine work of making governing decisions, not deciding who gets what (which is the job of the market economy), while allowing individuals to make the important choices about their lives without economic coercion.

Such a statement can only make sense in light of the incredible difference ... the chasm ... separating the thinking of Karl Marx in 1844 and Buckminster Fuller in 1963. Marx was speculating on the possibilities of an industrial process in its infancy, while Fuller reports scientifically on the results, on the real impact industrialization and technical development through three World Wars has had on human development and the global economy.

Marx may well have intuited the crucial issue that would face humanity when industrialization had advanced 150 years, but this doesn't make Fuller a Marxist. Fuller has simply reported that industrialization, the application of science to economic production, has succeeded so incredibly, that our real problem is that people cannot conceive of how different the economics has become. (For example, the only division of labor that has any meaning for the future is between human and machine, but of course, this is merely to state a conclusion, not the proof, which Fuller has provided, for example, in _Critical Path_ or _Grunch of Giants_).

An example Fuller gives of the impact of science upon our understanding of the world is the fact that when he was a young man, astronomers discovered the first galaxy. By the 60s, over 200 billion galaxys had been discovered. Human know-how has advanced comparably in every field where science operates, especially where real benefits accrue to those funding the science, i.e., industry.

If Bucky is credible, then what we are dealing with in the recent financial collapse is not a short-term policy debacle, but the emergence of the consequences of systemic failure ... the failure of our economic system to handle the transition from Newton's static world-view to Einstein's "everything's in motion" relativity. Or, what's more relevant to the economy, the transition from a world of scarcity born of human ignorance of how nature's world works, to a world of abundance created by ever increasing human know-how using the finite resources of the planet with ever increasing efficiency, so that material and energy resources available to humans is now approximately unlimited.

The important point here is that when Karl Marx in 1844 speculated on the possibility of industrialized mankind reaching the point where it would be possible "to make the world work for everyone", those speculations were hazy visions 150 years thence. Today, that point in human evolution was crossed 40 years ago! How many people realize this??? More importantly, what are the consequences of people not coming to this realization? Fuller emphasized that science-guided industry has been operating full throttle in the approximately 100% invisible realm of Einsteinian physics, while most humans still operate under Newton's rules, thinking that the sun "rises and sets" and apples fall "down" (while in REALITY the sun is periodically eclipsed by the earth rotating on its axis, and apples fall "in" toward the center of earth's mass, because there is no "up" or "down" in Universe).

This is how Fuller speaks, but his point hasn't been appreciated. The roughly 10 million who have lost their income from work since the beginning of the economic meltdown in 2008 want their jobs back. But where do jobs come from? If they come from business & industry, then they are grudgingly created, because labor is a cost of doing business, and business attempts to minimize costs and maximize profit, and with increasingly affordable automation, human-labor isn't cost effective. On the other hand, if jobs are created by government, then how efficient is the bureaucratic process of creating jobs ... not to mention fairness of job creation, and the potential for corruption when politicians are empowered to choose which industries get funds for job creation, and which bureaucracies get to manage the jobs, say, in education or the postal service?

In other words, it's too much to ask for a job. If the government is to be responsible for ensuring that jobs are available, then it is much more efficient for government to directly supply incomes and leave the work to be done by those who can do it most efficiently, the industrialized corporations.

Which brings us to the key to the puzzle. The corporations can only be successful in a market economy if they can operate at a sufficiently large scale to realize the benefits of mass production. (Fuller describes the process by which the hundreds of automobile manufacturers at the beginning of last century were reduced to the small handful which survived by realizing that at least 135,000 cars had to be produced and sold in order to capitalize on the economies of scale necessary to provide an sufficiently affordable vehicle.) In short, corporate industry needs lots of consumers to succeed. It can't do without the consumers, but it can do without the workers, because it can automate the work, but it cannot automate the purchasing of its products. The government, however, can make sure that everyone has a certain amount of purchasing power. And this is the most efficient way for government to "intervene" in the economic system, by regulating aggregate purchasing power, not employment. Moreover, since a Guaranteed Income program can be designed to offer the same options to everyone, it meets the criteria that "government should do nothing for anyone that it is not willing to do for everone." You simply choose your own tax bracket each year: either (1) pay a flat 25% on your income, or (2) pay a flat 50% tax on any income you have other than a $2,000/month guaranteed income, i.e., a negative income-tax payment, also called a tax credit.

But now for the ultimate irony. This solution is so exquisitely efficient, because it absolutely minimizes the role of government. No more bureaucracies to administer the Health, Education & Welfare of the society ... all done with simple, automated transfers of funds. No further entitlement programs, other than the Guaranteed Income, set not to perpetuate poverty, but to make sure that everyone has at least the "average" US income, with funds for discretionary spending, providing markets for corporate production. The poor benefit directly. Those currently on assistance or entitlement from the government all do better under the Guaranteed Income, allowing for the dismantling of Social Security, Welfare, Disability Insurance, Unemployment Insurance, Student Loans, etc. The millions of displaced former bureaucrats and ancillary workers all have the cushion of an "average" income until they find or create work for themselves in the marketplace. And finally, the entrepreneurs, the professionals, and anyone with annual earnings over $100,000 all get the benefit of a flat tax rate at 25%. The corporations are not eligible for income guarantees, and their flat tax rate might be set slightly higher, say 30%, but they and their shareholders all realize the benefit of having every citizen empowered with discretionary funds.

In short, it is a win/win situation for all (except for those who insist on reaping the windfall profits of corruption, and they should be in jail anyway). Approximately everyone benefits from this solution. So why is no one talking about it? Because of a concept called Moral Hazard. Because with Newtonian logic people have become convinced that poverty results from people making bad choices, and that society must allow those people to suffer the consequences of their mistakes in order to learn from them and so "improve their characters". And the irony is that, in a display of true heroism, Secretary of the Treasury Henry Paulson & Fed Chairman Ben Bernanke just proved that Moral Hazard, in the context of global economics, does not apply.

Suddenly a Guaranteed Income is possible.

Some Thoughts on the Epstein and Lessig Discussion on Campaign Finance Reform

20100205

The following are some thoughts I'd like to direct to Professors Epstein and Lessig, in response to their debate of August 11, 2009 on the WRFU program The Logic Consortium. I came upon this link after listening to Prof. Lessig's video on fixcongressfirst.org and reading his article in the Nation magazine on February 4, 2010. I'd be very grateful for any feedback on these ideas.

I'd like to start with a point that Epstein makes responding to Lessig's call for campaign finance reform to eliminate "influence buying" in congress:

"There are two places in which you can try and buy things: one is to get your favorite senator or representative in Washington, and the other is to lobby like hell on a particular issue."

Epstein asserts that even if you could control the first method of "influence buying" with campaign finance reform, then all the "influence money" would simply transfer to the second method, resulting in all kinds of single-issue PACs that would effectively perpetuate the current system of influence peddling.

This argument seems convincing, and Lessig effectively agrees, and then makes the horribly weak assertion that, essentially, it is better to do something that won't work than to do nothing at all, since people's faith in democracy is fading.

But Epstein sees the real problem as being the fact that all constitutional constraints on what government may do have eroded.

"The object of a constitution is to try to figure out how the legislature can advance the common good, such that they can improve the lot of one only if they improve the lot of others."

While this sounds like a noble sentiment, I suggest it is flawed by its scope, as I'll explain momentarily.

Epstein goes on to say that, "The thing that you hated under this system is the taking from A and giving to B. That's exactly what modern politics does, and that's exactly what the supreme court and all the lower courts frown upon."

Now the argument is muddled. What is to be hated about taking from A to give to B if the result is to improve the common good? An avalanche of questions suddenly arise as to the nature of the good achieved, the nature of the loss A suffers, and how B's benefit advances the common good, and not just B's position, etc.

A better strategy for the legislature to adopt when trying to improve the common good is this:

The government should do nothing for anyone that it is not willing to do for everyone.

The problem with requiring the legislature to "improve the lot of one only if they improve the lot of others" is again the ambiguity involved. For example, what if improving the lot of A also improves the lot of B, and none else? Or what if A benefits along with a small segment of the society? How big of segment should benefit before legislation is justified?

The answer really should be: all or none. This is the only fair answer, but its real value is that it eliminates the possibility of corruption, exactly the kind of corruption that defines "modern politics".

Moreover, it is easily achievable, once legislators stop viewing themselves as the dispensers of largess, and start to see that their role is really one of understanding how to act in ways that benefit everyone. It can be done, as the following example will illustrate.

Let's assume that we want to craft a piece of legislation that, in the first place, adheres to the restriction that, "government should do nothing for anyone that it is not willing to do for everyone", and secondly, aims at doing the greatest common good with the least upset to the existing system, while eliminating the corrupting influence of money, and solving all of the major problems facing our country and our economy ( as well as creating a new paradigm for the global economy).

The solution is as follows:

The legislature needs only to revise the U.S. Tax Code. All existing Tax Code can be essentially discarded and replaced with a simple two-bracket tax system. Each year, each citizen is allowed to choose which tax-bracket they would like to apply to themselves. In the first bracket, a citizen elects to pay a flat 25% of their income as taxes. In bracket two, a citizen elects to pay 50% of any income they have other than a $2,000/month payment they receive from the government, which can be called a guaranteed income, a negative income-tax payment, or a tax credit. There are no deductions, and no lengthy tax forms, only a simple declaration of income. (Also note that corporations have no choice. They are required to pay the flat 25% -- or perhaps 30% -- on all net income, and to report the details of their financial transactions.)

By making this change to the Tax Code, the legislature would effectively create a Guaranteed Income program for all citizens, set at a level which would assure a family an income roughly equal to the current average American family income. Set at this relatively high level of an annual $25,000 per person , all other government entitlement programs could be eliminated, since no one on those programs would be worse off under the new Tax Code plan. Thus, there would be no obstacle to eliminating Social Security, Unemployment Insurance, Welfare, Food Stamps, Educational Loans, Subsidized Housing, etc.

Notice that this legislation also solves the Health Care problem, because everyone receives a monthly stipend set high enough to allow them to purchase a health insurance policy if they so desire. Of course, the legislature will still need to address regulation of the health insurers and the health providers, but this is the work the legislators should be doing, not doling out largess.

Notice also that once such a system of income guarantees is implemented, it could well become a badge of honor for a political candidate to declare the guaranteed income as their only source of income. Legislators would still need to adopt programs to ensure that candidates have access to the tools needed to run for office, but not by dishing out money to individual candidates, as Lessig apparently suggests with "grub stakes". Instead, all candidates can be given access to tools such as websites, television airtime, phone services, printing services, and anything else which can be made available within the confines of the prime directive:

Government should not do anything for anyone that it is not willing to do for everyone.

I hope this solution will appeal to Lessig, who did agree here that "what is necessary is something fundamentally new." Although this idea was originally worked out in the 1960s by Milton Friedman, Robert Theobald, John Kenneth Galbraith and other economists, as well as by the comprehensivist Buckminster Fuller, and was embraced by Martin Luther King, Jr. in a speech given in Atlanta on August 16, 1967, it can still be considered "new" in relation to the "solutions" -- that won't solve anything -- currently being discussed (such as "stimulus" and "jobs" programs).

Epstein clearly delineated why the current "solutions" won't work:

"What is interesting about our constitutional evolution and our judicial and quasi-institutional evolution is that all of these transformations take place without anybody doing a system-wide analysis of what happens at one part of the place when it comes to the interactions at the other. I think even [Lessig] agrees with that. You need a general equilibrium analysis, and these guys are all playing very partial equilibrium games."

A Guaranteed Income program is a comprehensive, system-wide solution designed to insure economic security and stability for each person, for the entire American economic system, and for the global economy. The cost of implementing the plan is far less than the financial bailout that has enraged the nation, and once implemented, it becomes self-sustaining from a number of factors too numerous to detail here, except to mention that a fraction of the huge sums now funding the corruption in our current system can be redirected to the common good.

But the important point to note is that it accomplishes a bloodless revolution that ends the corruption in the current system by liberating the citizens of our democracy from the economic domination of the corporations (or more specifically, the shareholders) and circumscribing the economic power of legislators. Would Paulson & Bernanke have been justified in handing the Treasury over to the banks and brokerage houses if the economic security of all citizens had been protected by a Guaranteed Income program?

Thankyou for considering these ideas.

Loren Castleton
oloren1@fastmail.fm

Insights from watching PBS Frontline video, Inside the Meltdown: What happend to the economy?

I sent the following article to Huffington Post, but got no response, so I'm posting it here....

January 25, 2010

This article was inspired by a PBS Frontline video called "Inside the Meltdown: What happened to the economy?", which did a superb job of documenting (as of February, 2009) exactly what happened during the financial collapse, and the subsequent government bailout at the end of 2008. (You can watch this hour-long show at www.pbs.org.)

Public opinion has gradually shifted to what appears to be a fairly widespread consensus that "We the People" got royally screwed by the big financial institutions in the bailout. What I discovered watching the story of how this financial cataclysm happened, however, was that I could catch just a glimpse of the outlines of a real solution to the underlying problems in our economic system, and I'd like to share those glimpses with your readers.

I'll start by pointing out that my insights revolve around a concept central in the mind of Henry Paulson, the Secretary of the U.S.Treasury Department who essentially engineered, together with Ben Bernanke, the Federal Reserve Chairman, the (so far) successful resurrection of the collapsed U.S. (and consequently global) economic system. The concept is Moral Hazard. It is explained in the film as a belief, held strongly by those most successful and powerful in the existing system, and especially Paulson, that if you bail someone out from a situation which they themselves caused, then they will have no incentive to recognize their mistakes, and so will likely do the same erroneous or even malevolent things again.

In some contexts, this idea is clearly right. Suppose a person, call him Ishmael, has a gripe (real or imagined) with his brother Isaac. Instead of discussing the problem, or submitting the problem to arbitration by others, Ishmael decides the best thing for him to do is to spend all his money, everything he owns, to hire a hit-man to kill Isaac. But suppose the hit-man fails, is captured, and thrown in jail. Now Ishmael is in desperate trouble because he has nothing, and no way to support himself. The doctrine of Moral Hazard says that it would be wrong to bail Ishmael out of his desperation, since he would then have no incentive to do anything other than what he did before: he takes your bailout money, hires another hit-man, etc. In other words, because Ishmael is bailed out of a situation he himself caused, he has no chance to learn from his mistakes, which, as Buckminster Fuller points out, is the way humans have always learned about the nature of the world they live in, starting from the moment of their birth. And so, it is clear that to deprive Ishmael of the opportunity to learn from his mistakes is an extraordinary "moral" crime, because it robs him of what might be viewed as the essence of his humanity... (not to mention the fact that it keeps Isaac dodging bullets).

We learn in the video that it was extremely clear to Paulson that a government bailout of Bear Stearns would be a classic case of Moral Hazard. Nonetheless, Paulson & Bernanke decided that there were other considerations that had to take precedent over the Moral Hazard issue: the possibility of an economic systemic failure, i.e., a meltdown. And so, when announcing the bailout of Bear Stearns, Paulson sent a stern warning to Wall Street that there would be no further bailouts by the government (to which the other brokerages replied, "Yea, right.").

When Lehman Brothers showed up at the Treasury a short time later asking for a similar bailout, Paulson and Bernanke were faced with a moment of truth. These two immensely successful men, standing at the pinnacle of the financial edifice, were the acknowledged masters of the game, and now they were confronted by not only the hardest choice of their careers, but by a question that put at risk the very foundations of the global economic system, and potentially threatened the lives of millions... even billions of people on planet earth. That question was whether the doctrine of Moral Hazard, upon which the existing free market global economy is based, is in fact a red herring when applied to the global economy of 2009. In other words, they had to consider the possibility that Moral Hazard may well be valuable for handling Ishmael's rage, but of no use whatsoever in guiding corporate and government behavior in a global economy.

Paulson's answer was clear and concise: to remove the Moral Hazard beacon from the helm would be equivalent to removing the rudder from the ship of the American economy: it would become unsteerable. Paulson was willing to risk the systemic repercussions of letting Lehman Brothers fail. And it did.

This brings us to the insight which I believe is the crucial lesson of the economic meltdown, and it is simply the lesson which Henry Paulson was forced to learn from his mistake in letting Lehman Brothers fail. For it was no doubt a mistake. After Lehman's bankruptcy was followed by the failure and subsequent government buyout of Fannie Mae & Freddie Mac, all confidence evaporated from Wall Street and credit froze. Then suddenly the insurance giant AIG turned to the Treasury and the Fed for help, because it was no longer able to meet its payment obligations, because it now owed billions of dollars which it did not have on "credit default swaps" insuring companies across the globe against the failure of Lehman brothers, which had now failed. Since all the big financial brokerages and banks were now vulnerable, for they all held the same "toxic debt", and they were all interdependent in their relations with each other, Paulson & Bernanke realized they had to address the systemic failure which was unfolding before their eyes. And it was clear they had to act fast, before every security, every mutual fund, every insurance policy, every annuity and pension, and every bank deposit (over FDIC insured amount of $100K) became approximately worthless.

Within days Paulson & Bernanke had discarded the doctrine of Moral Hazard along with the entire foundation of conservative unregulated free-market capitalism upon which they had built their enormous success, their fortunes and their reputations. They turned to congress for bailout money, at first asking for $700 billion to buy the "'toxic mortgages" supposed to be causing the problem, but soon changing the strategy to the "capital injection" of billions --soon to be trillions-- into the largest banks to stop the immanent collapse of the financial system.

Capital injection, of course, is a guaranteed income for corporations, not for people. Which means that the bailout was a guaranteed income for the shareholders of these corporations, as well as for all those who would have lost everything without the bailout which Congress approved.

Personally, I consider Paulson & Bernanke to be heros. Not because they've solved the financial crisis, because they haven't. But because, standing at the pinnacle of success, rather than defending their own deeply-held principles, which they could easily have done, they had the courage to embrace their humanness and recognize the consequences of their decision upon all of humanity, and so humbled themselves by admitting that the fundamental principle upon which our entire economic system today is based, is a mistake.

The doctrine of Moral Hazard cannot guide the global economy in the twenty-first century. It is time for all of us to join the discussion, so that we can quickly find the best answer to the question of what can.

Finally, I will end with my answer to this question. It is a vision of a "Permanent Status" solution for the American economy which could serve as a global model. When Paulson & Bernanke made the decision to allow Lehman Brothers to fail, every stock, bond, mutual fund, insurance policy, annuity, pension and large bank account became, at that moment, approximately worthless. When they changed their minds and went to Congress asking for an initial $700 billion to "unfreeze the credit markets", to be followed by 10 trillion or more in subsequent bailouts, this was in effect a "Guaranteed Income" for stockholders. It is an indisputable fact that those millions of stockholders, who own the lion's share of wealth in the U.S. and the world, are today not penniless on the streets because the U.S. government gave them a guaranteed income. There is now a serious question of fairness ... of justice ... in the government giving blanket guaranteed incomes to the wealthiest citizens (without the filling out of 6-page fine-print forms requiring disclosure of their personal circumstances and all sources of income over $25, such as those required of Food Stamp recipients), while that same government ignores the needs of the homeless living -- and dying -- on the streets, not to mention the millions struggling for mere subsistence.

In my view, the government should do nothing for anyone that it is not willing to do for everyone.

I propose that the permanent solution to the global financial crisis we are still dealing with can be achieved by replacing the United States Tax Code with a simple system to implement a Guaranteed Income for all. Each year each citizen would be allowed to choose which of two tax-brackets they would like to have apply to themselves. In the first bracket, you pay a flat 25% tax on any income you have over $100,000. In the second bracket, you pay a flat 50% tax on any income earned other than the $2,000 per month that you receive from the government, which can be called a tax credit, a negative income-tax payment, or a guaranteed income.

The concept of a guaranteed income is not mine. It has been explained and supported, in various forms, by a long list of notables, including Thomas Jefferson, Thomas Paine, Abraham Lincoln and many others (see the full list at www.incomesecurityforall.org). But perhaps most significantly, in the 1960s, economists Milton Friedman, Robert Theobald, and John Kenneth Galbraith articulated a practical guaranteed income plan and advocated its adoption by Congress , as did the one man who worked out the "Critical Path" by which humanity could avoid destroying itself and create a world that worked for everyone: R. Buckminster Fuller. In a speech delivered in Atlanta, Georgia on August 16, 1967, entitled "Where do we go from here: chaos or community?", Dr. Martin Luther King, Jr. announced that he had come to the conclusion that the quickest and most efficient way to end poverty in our time was to adopt a guaranteed income program.

The principal objection raised by those who oppose implementing a guaranteed income program is the doctrine of Moral Hazard.











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Another patriotic poem....what can I say?

Loren of Lorien

Welcome to Lorien! Well not exactly the Lorien described by JRRTolkien, but a place inspired by that god of Middle Earth, Lorien, whose dominion encompassed those realms of dream that had the quality of seeming more real than reality... perhaps it could be called illuminated thought or enchanted vision or... well, see for yourself.